Avoiding tax by passing off revenues as agricultural income is set to get more difficult as robust checks are being introduced, the Central Govt has told Parliament’s Public Accounts Committee, which pointed to several lapses in granting blanket exemptions.

Super-rich farmers will face stricter scrutiny by tax authorities, who will comb through details of agricultural income — tax-free under the law — in jurisdictions where farm income exceeds a threshold of ₹10 lakh per annum, the finance ministry said in a reply to questions to the parliamentary committee.

In about 22.5 per cent of cases, authorities approved tax-free claims without proper assessment & verification of documents, allowing scope for evasion of taxes, the committee said.

The panel released its 49th report, “Assessment related to Agricultural Income” on Tuesday. It is based on a report by the Auditor & Comptroller General of India.

One such case involved tax exemption of farm income of ₹1.09 crore as proceeds from the sale of farmland in Chhattisgarh.

Pointing to lapses, the parliamentary panel said in the above instance, that authorities had neither vetted “documents” that support a tax waiver in “assessment records”, nor were they “discussed in the assessment order”.

Under section 10(1) of the Income Tax Act, 1961, agricultural income is exempted from tax. Any proceeds from rent, revenue or transfer of agricultural land & incomes from farming are considered as agricultural income under the law.

The IT department said it didn't have sufficient manpower to check all cases of fraud in all its jurisdictions, known as commissionerates.

The parliamentary panel was told that to overcome this, the finance ministry has devised its own system to directly scrutinise tax-free claims in cases where agricultural income is shown to exceed ₹10 lakh.

Naval Kishore Sharma, an Ex-IT department official said that “The mere mention of a tax on agriculture scares politicians. While a majority of farmers are poor & should be granted exemption, there’s no reason why big farmers should not be taxed".

If the top 0.04% of large farmer households as well as farm companies, at the top 30% bracket, are to be taxed for farm income, then annual tax gains of up to ₹50,000 crores can be achieved, according to a paper by the erstwhile Planning Commission.

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